TSL profit up 167%


TSL Ltd announced its 2018 financial year results which showed a 167% rise in net profit after tax to $12,909,843 (2017: $4,843,250). This is due to a $7.7 million profit on disposal of an operation, which had a significant effect on the profit figure. Similarly, increased expansion related spending was offset by the disposal to push the net cash flows into a $1 million net inflow from 2017’s $1 million net outflow. The operating profit before tax also rose by 20%, showing positive performance in the core business operations. The growth in profit was driven by rising revenues, up by 19% to reach $52 million, the companies highest since 2013.

The net and operating profit margins remained relatively stable in the period at 15% (2017: 15%) and 10% (2017: 11%) respectively. This is a strong showing in light of the inflationary pressures associated with the current economic environment. More so considering the company’s operational reliance on imported inputs. Arguably the noted international partnerships and relationships paid dividend in maintaining access to the necessary foreign currency financing for imports. The 100% owned Mauritian subsidiary is an ideal strategic holding in this context. Consequently, the return on operating assets remained stable, rising marginally to 7% from 6% in 2017.

The debt ratio fell to 10% (2017: 11%) as total debt fell by 2% and the debt to equity Ratio stands at 14%. Of the debt held by the company, 85% is short term.

Notes in the statements suggest the company is aiming to generate growth from within, with focus on the agriculture value chains. Further to that the company is considering acquisitions that complement that strategy.

Unit Performance

Agricultural and logistics units were the highest external revenue contributors of the four company operational units at 59% and 29% respectively. The overall growth in external revenues was also dominated by agriculture and logistics, gaining 17% and 21%. Rising output and strong prices positively impacted a variety of the company’s tobacco related operations in both units. The impact was particularly significant to the logistics sector, which experienced growth in external revenues for the first time since the 2015 financial year. Conversely, the growth in agriculture operations revenue fell in 2018 from the its 37% showing in 2017. This may be due to discontinued agriculture packaging operation TSL Trading and the noted underperformance of the Agricura division, which specializes in agriculture chemical and pest control services.

Analyzing the efficiency of the units, the operating assets allocated to both units grew by 29% (logistics) and 25% (agriculture). At the same time utilization improved as return on operational assets rose to 10% (2017: 7%) for the logistics unit and 23% (2017: 17%) for the agriculture unit. Similarly, net margins for both units also improved. The rise in both suggests operations moving towards more efficient asset utilization.

Growth in Real Estate and services units’ external revenues was more subdued at 2% and 0% respectively. For the Real estate unit, the growth represented a positive break after three years of falling revenues. Similar to the other units, the real estate operations also benefited from the strong performance of tobacco through higher demand for warehousing services. The comparatively low external revenue shares of the units (12%) relative to the high asset allocation (57%) suggests they function mostly as strategic support centers for the other two units.

Commentary and Outlook Key financial indicators of revenues, profits and cash flows were all positive. Stable profit margins and a healthy financial standing with positive cash flows and a moderate debt load. The outlook hinges strongly on the performance of the national agriculture sector as whole, particularly the tobacco industry.

Moving in to 2019, the outlook

for agriculture season is pessimistic with the el nino drought predicted to negatively affect rainfall. The group noted the company would concentrate on irrigation farming to mitigate the risk of low rainfall.

The level of integration among the operating units poses further risk of amplifying any negative changes in the agriculture sector to the whole company.

TSL will hope to continue to overcome the currency shortages in order to maintain supplies and profit margins. The price of domestically sourced inputs will also be a concern in relation to sustaining the margins. The rising fuel prices and the effect on other inputs will put significant pressure on margins, as will the growing threat of tariff hikes on electricity provisions. Developments around import restrictions also pose a concern, as commentary on the financial results noted the threat of increased competition in the fertilizer markets arising from the suspension of Statutory instrument 122. Although the price competitiveness of foreign fertilizers is negated somewhat by the prevailing parallel market exchange rate. On a similar note, parallel exchange rates inflating the price of imported consumables and the subsequent drive towards import substitution presents ample opportunity to expand agro-processing operations.

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